[理学]FIN220_Chapter_18_class_2.ppt

Stock Dividends and Stock Splits Used to move the stock into a more popular trading range and increase share demand. Usually signals negative information to the market upon its announcement (consistent with empirical evidence). Assume a company with 400,000 shares of $5 par common stock splits 1-for-4. How does this impact the shareholders’ equity accounts? Reverse Stock Split – A stock split in which the number of shares outstanding is decreased. Reverse Stock Splits Before 1-for-4 Stock Split Common stock ($5 par; 400,000 shares) $ 2,000,000 Additional paid-in capital 1,000,000 Retained earnings 7,000,000 Total shareholders’ equity $10,000,000 After 1-for-4 Stock Split Common stock ($20 par; 100,000 shares) $ 2,000,000 Additional paid-in capital 1,000,000 Retained earnings 7,000,000 Total shareholders’ equity $10,000,000 Value to Investors of Stock Dividends, Stock Splits, or Reverse Stock Splits Effect on investor total wealth Effect on investor psyche Effect on cash dividends More popular trading range Informational content What We Will Learn Today (Class 2) Types of Stock Dividends Its effects Stock repurchase Affect on shareholders Signaling Dividend administration Stock Repurchase Reasons for stock repurchase: Available for management stock-option plans Available for the acquisition of other companies “Go private” by repurchasing all shares from outside stockholders To permanently retire the shares Stock Repurchase – The repurchase (buyback) of stock by the issuing firm, either in the open (secondary) market or by self-tender offer. Methods of Repurchase Fixed-price self-tender offer – An offer by a firm to repurchase some of its own shares, typically at a set price. Open-market purchase – A company repurchases its stock through a brokerage house on the secondary market. Dutch auction self-tender offer – A buyer (seller) seeks bids within a specified price range, usually for a large block of stock or bonds. After